What Are Guarantor Loans?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 15 August 2019
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When a loan agreement involves a third party who guarantees the loan, it is referred to as a guarantor loan. Often, guarantor loans are made when an individual has a short credit history or poor credit. In such a case, a lending institution might deny a loan because the borrower represents too much of a risk. If a guarantor is willing to take on the responsibility of repaying the loan in the event that the borrower defaults, however, a lender may be more willing to grant the loan. Usually, guarantor loans involve written agreements that are signed by not only the borrower, but also the guarantor.

Guarantor loans are a type of lending situation in which a third party guarantees that a loan will be repaid. With this type of loan, the borrower is responsible for repayment. In the event that the borrower fails to repay the loan, however, the third party who guaranteed the loan is then responsible. Often, people seek guarantor loans because they have problems qualifying for loans on their own. For example, this could prove to be a desirable option in the event that a person cannot qualify for a loan because he has a short credit history, bad credit, or too little income.


There are many types of guarantor loans a person can seek. Since the term guarantor loan only applies to the fact that a third party guarantees repayment, the term is suited for just about any type of loan. For example, a guarantor may help a person obtain a student loan, mortgage, or car loan. These loans can be made for personal reasons or for the purpose of debt consolidation as well.

Anyone can be the guarantor of a loan for another party. Often, family members and friends help their loved ones in this manner. Sometimes businesses and other organizations guarantee loans as well. Typically, the requirements for a person who wants to become a loan guarantor are excellent credit and a means of repaying the loan in the event that the borrower defaults. In most cases, a lender considers a guarantor’s income and assets in deciding whether or not to grant a loan.

The promise of a borrower and a guarantor to repay a loan are not enough to finalize a loan and get money into the borrower’s hands, however. Instead, guarantor loans are finalized with detailed contracts that are signed by both the borrower and the guarantor. These contracts give the lender proof that he has the right to seek repayment from both the borrower and the guarantor in a default situation.


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Post 2

I bought a car and financed it a year ago. My previous boss became the loan guarantor of the car. I got the car from one of his friends who is a dealer. He told me that I would get car at a cheaper price at his place than at other places. I was told it would be about $4,000 AUD cheaper than other dealers could sell it for. After I got the car and signed everything, I found a Hyundai Elantra Active whose value was $22,590, but it cost me $28,000 AUD. After the interest rate was applied, it was more than 13 percent higher. It cost me $38,000 AUD.

I went back to the dealer to return my

car and they told me once I took the car, I would lose money -- about $10,000. So there was no reason to sell. I could not get a fair deal because I was still working for my employer. Last month, I left that job. One Friday night, I went to my car park and I did not find my car. After filing a police report, I found that my car had been repossessed by the bank. I called the bank but they didn't want to give me any information, saying loan was not in my name. But I was paying from my commonwealth bank account every week by auto debit account.

Now I've paid nearly $10,000 for my car already and I have neither my car nor my money. I have made a complaint to fair trade and I hope they can give me justice. But I need a car for my new job. Otherwise, I am going to lose it. I could not decide whether I should finance a new car or not because the bank already told me I have no credit. If anyone has any suggestions, it would be really great.

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